Monday, April 24, 2006

Hog havens

I have recently posted on the current online video craze. Mercifully none of these companies are public, limiting the bubble and the damage. But one thing is for real - bandwidth demand is back!

The overbuilding of pipes to match the predicted bubble-era bandwidth demand led to a glut, and then gutted all the players sending a few into bankruptcy. The circle is complete, and it has been quick.

There is definitely a surge in bandwidth demand, what with Desperate Housewives and other shows now available for download. Will this one last ? It is likely to be more permanent compared to the last time.

How do you go about playing this upsurge ? Here are some picks. You are warned - many tend to be speculative. Watch your step.
  • Arbinet (ARBX): provides a platform for trading bandwidth. Shares look cheap, but a power struggle may keep them there for a while. I had mentioned in an earlier post on investing in exchanges.
  • Telkonet (TKO): broadband over powerlines. This has a large potential, especially when you consider that DSL is the only reason you need a phone line into your home today and that most phone companies don't provide naked DSL. I can't wait to get rid of AT&T!
  • Seachange International (SEAC): server systems for digital storage and on-demand/interactive tv. Seachange is well-positioned to profit from a mass move to on-demand and ip tv. Also Concurrent Computer (CCUR) and C-COR (CCBL) are worth watching.
  • Verizon (VZ), AT&T (T), Vodafone (VOD): Will net-neutrality end ? If so, these players will benefit. Verizon has also invested heavily in capacity upgrades in recent years and could succeed in delivering tv-over-IP better than the others. Vodafone has been rumored to be a target for private equity groups. All three have attractive yields.
  • KVH Industries (KVHI): A niche player. Among the few providers of mobile internet for marine and recreational vehicles.
  • RealNetworks (RNWK): With $800 million in hand after the Microsoft settlement, they must try really hard to lose. Napster (NAPS) is a takeover bait too, though it needs to work on its user experience before becoming as attractive as RealNetworks.
  • Tivo (TIVO), Netflix (NFLX): Along with RealNetworks, these two can provide some interesting services.
  • Salesforce (CRM), RightNow (RNOW): a nice circle of increased bandwidth making these services popular and that in turn driving bandwidth demand further.
  • Global Crossing (GLBC), Internap (IIP), Covad (DVW): These hot players of the boom period get a second chance.
  • Digital Music Group (DMGI), Loudeye (LOUD), Audible (ADBL): encoding and online audio content providers.
  • Seagate (STX), Western Digital (WDC), Sandisk (SNDK), Advanced Digital (ADIC), Overland (OVRL), Qualstar (QBAK), Ciprico (CPCI), Xyratex (XRTX): storage and backup for all that content!

My picks - Arbinet, Seachange, KVH, RealNetworks, WDC.


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